Cellphone market to be hard hit by crisis

The impact of the global economic crisis will spread to the mobile phone market resulting in a downturn in shipments in 2009, research firm International Data Corp. (IDC) said.

According to IDC, total mobile phone volumes will be 1.9 percent lower in 2009 than in 2008, the first downturn in annual shipment volumes since 2001 when shipments declined 2.3 percent.

Over the past several years, the mobile phone market has enjoyed double-digit annual growth due to an increased emphasis on emerging markets. However, emerging market growth has been steadily slowing as these markets mature. IDC now expects worldwide growth to be just 7.1 percent in 2008 before slipping into negative growth in 2009.

In recent months, a number of major industry players – including component suppliers, handset makers, and operators – have announced their concerns about handset volumes in 2009. Most have indicated that they expect a year-over-year decrease due to the flagging global economy.

“Nokia’s announcement was the first sign of troubles to come,” said Ryan Reith, senior analyst with IDC’s Mobile Phone Tracker. “However, the real concerns set in with announcements from the chipset vendors who supply the industry. Qualcomm, Texas Instruments, and MediaTek are among some of the suppliers announcing reductions in manufacturing for the upcoming year. There is a lot of uncertainty about how the markets will fare and inventory levels will be more of a focus point than ever before.”

The economic crunch has also affected consumer behavior, particularly consumers’ plans to purchase new devices. With less disposable income available and other expenses competing for attention, consumers may choose to hold on to their current devices rather than replace or upgrade them at the next possible opportunity, usually when a service contract expires.

As long as the device functions properly, consumers may put off the replacement decision until more funds are available. This shift in demand will reduce the need for devices from handset vendors, much in the same way that the shift in supply will reduce the availability of devices from handset vendors.

However, IDC does not expect the downturn in mobile phone shipments to stretch past 2009. By 2010, the worldwide mobile phone market will show signs of improvement as economic recovery plans will have taken effect.

With more disposable income in hand, consumers should feel more comfortable buying a new handset, especially if the opportunity to purchase was delayed. Beyond that, further growth is expected, but at a slower pace compared to the strong double-digit growth experienced in the years prior to the decline.

Additionally, not all segments of the mobile phone market are expected to decline. IDC expects converged mobile devices – commonly referred to as smartphones – to grow 8.9 percent worldwide in 2009. This contrasts sharply against the negative growth expected for the entire mobile phone market. Beyond 2009, growth will return to double-digit territory, faster than the overall mobile phone market.

IDC projects that worldwide, shipments of traditional phones will drop 3.5 percent but those of converged mobile devices or smartphones will rise 8.9 percent next year. By 2010, worldwide shipments of mobile phones will increase 7.7 percent. Those of traditional phones will grow five percent but those of smartphones will increase by 24 percent.

“Converged mobile devices remain a much sought-after option for many consumers,” noted Ramon Llamas, senior analyst, Mobile Devices Technology and Trends. “Users have come to realize what these devices can do beyond voice telephony, especially when it comes to running applications. Take a look at how gaming, mapping and location, entertainment, news, and social networking applications for converged mobile devices have taken off, allowing users to do much more than just make phone calls. In response, handset vendors have been building their product and applications portfolios to catch this wave of opportunity.”

Lower prices are also making converged mobile devices an attractive choice for consumers. It was not long ago that these devices cost well above the $200 price point with a two-year contract. As prices have come down in recent quarters, these devices have become competitive alternatives to traditional mobile phones. Faced with the option of purchasing a converged mobile device at roughly the same price as a traditional mobile phone, consumers will be strongly tempted by the fully featured smartphone.